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Supreme Court Takes A Middle Course

By Floyd Norris June 21, 2007 5:27 pmJune 21, 2007 5:27 pm

The Supreme Court decision in Tellabs today drew praise from trade groups for banks and trial lawyers. That alone should be an indication that it is anything but definitive in its effect. Even the Tellabs case may yet survive and go to trial, depending on how lower courts assess the facts in light of today’s opinion.

The issue is the standard to apply when a judge decides whether to dismiss a class-action suit before discovery begins. (Companies are more inclined to settle if they must spend money coming up with documents and depositions from executives.)

The Seventh Circuit Court of Appeals found that plaintiffs must allege facts that could persuade a reasonable person that the defendant’s state of mind was such that he had acted with knowledge that his conduct was wrong. No, said the high court: that inference must be “at least as likely as any plausible opposing inference.”

That distinction may prove to be important in practice.

What would have been significant is if Justices Scalia and Alito had persuaded their colleagues that any such case should be dismissed unless the inference that the defendant knew what he was doing was wrong was “more plausible than the inference of innocence,” as Justice Scalia put it.

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